Mexico cuts economic growth forecast after weak 1st quarter

May 23, 2014|Michael O'Boyle and Jean Arce | Reuters

(Tomas Bravo Reuters, )

MEXICO CITY (Reuters) - Mexico's economy grew less than expected in the first quarter due to weak domestic demand and sluggish industrial activity, prompting the government to slash its growth outlook to below three percent for 2014.

The country's gross domestic product grew 0.3 percent in the first quarter from the last three months of 2013, when it expanded by a downwardly revised 0.13 percent, the national statistics institute said on Friday.

A Reuters poll had forecast growth of 0.46 percent.

At an annual pace, GDP expanded 1.8 percent in the first quarter from a year earlier, below expectations for 2 percent growth but up from a 0.7 percent rise in the fourth quarter of last year.

After the data was released, the finance ministry cut its growth forecast for 2014 to 2.7 percent from a previous forecast of 3.9 percent, the second year running in which President Enrique Pena Nieto's government has had to lower its outlook.

Higher government infrastructure spending has helped pull the construction sector back from a sharp contraction in 2013, but exports stagnated, and factory output dipped in March.

"This confirms that the economic slowdown that began last year spread into this year," said Delia Paredes, an economist at Banorte in Mexico City. "Still, we are now starting to see some signs that the economy is rebounding," she said, pointing to a recent pick up in consumer confidence and stronger exports.

Financial markets had largely expected weak data. The country's peso shrugged off the news, trading at its strongest level in five months.

Analysts expect the economy to pick up steam in coming months, and Fernando Gonzalez, chief executive of Mexican cement giant Cemex, struck an upbeat note for the outlook.

"We are optimistic on the months and years to come because of the new infrastructure program for the next five years, and because of the green shoots we started seeing, because of new projects already assigned to us and others," he said on Friday.

"Finally Mexico seems to be moving in our sector," he added.

Last month the government raised its infrastructure spending target to 7.7 trillion pesos ($587 billion) by 2018.

The data showed industrial output grew less than 0.1 percent in the first quarter compared with the previous period.

Mexico exports mostly manufactured goods, and nearly 80 percent of exports go to the United States, where a harsh winter hurt the economy in the first quarter.

Domestic demand has also been weak as new taxes weighed on growth in the first quarter. Mexican unemployment rose to its highest level in more than a year in March, and retail sales slipped during the first two months of the year.

At an annual pace, the economy expanded 1.8 percent in the

Mexico's central bank on Wednesday had already cut its 2014 growth forecast to between 2.3 percent and 3.3 percent from a previous estimate of 3 percent to 4 percent.